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Solving  the  Railroad  Problem 

BY 

SAMUEL  M.  FELTON 

President,  Chicago  Great  Western  Railroad 


t 

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Library  of  congress  card  A20-i3?7 


AN  ADDRESS 

Delivered  before  the  Traffic  Club  of  Minneapolis 
Minneapolis,  Minn. 

Thursday,  October  21,  1920 


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Digitized  by  the  Internet  Archive 
in  2015 


https://archive.org/details/solvingrailroadpOOfelt 


L 1 5 1932 


SOLVING  THE  RAILROAD  PROBLEM 

By  SAMUEL  M.  FELTON 
President,  Chicago  Great  Western  Railroad 

ACCEPTED  your  invitation  to  discuss  the  railroad 
situation  tonight  not  only  because  it  gives  me  pleas- 
ure to  come  here  and  break  bread  with  you,  hut 
because  I believe  it  is  of  great  importance  at  the  present 
time  for  the  facts  regarding  the  railroad  situation  to  be 
fully  presented  and  discussed  from  all  points  of  view.  All 
classes  of  our  people — workingmen,  farmers,  business  men, 
railway  officers,  public  men — have  been  discussing  proposed 
solutions  of  the  railroad  problem  for  years.  We  still  have 
it  with  us,  however,  and,  frankly,  I think  we  shall  have  it  for 
a long  time  to  come. 

When  the  state  and  national  governments  about  fifteen 
years  ago  began  adopting  strict  policies  of  regulation,  many 
believed  those  policies  would  solve  the  problem.  Some 
of  the  policies  adopted  were  beneficial,  but  others  were 
harmful,  and  the  outcome  showed  that  as  a whole  they 
had  not  solved  but  aggravated  the  problem. 

In  the  midst  of  the  war,  government  operation  was 
adopted.  Many  believed  that  it  would  so  improve  labor, 
transportation  and  other  conditions  as  to  show  it  was  the 
solution  of  the  problem.  But  the  public  decided  that  gov- 
ernment operation  also  did  more  harm  than  good  and  that, 
therefore,  the  roads  should  be  returned  to  private  manage- 
ment. 

The  Transportation  Act. 

Preparatory  to  the  return  of  the  railroads,  Congress  last 
February  passed  the  Transportation  Act.  This  measure 
partially  or  wholly  reverses  some  of  the  policies  of  regula- 
tion formerly  followed.  Many  believed,  and  still  believe, 
that  the  Transportation  Act  is  the  greatest  constructive 


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railroad  measure  ever  enacted,  and  that  a full  and  fair  trial 
of  it  will  solve  the  railroad  problem.  Some,  on  the  other 
hand,  are  conducting’  a propaganda  to  show  that  the  Trans- 
portation Act  is  adverse  to  the  interests  of  railway  em- 
ployees and  the  public  and  unduly  favorable  to  the  compa- 
nies, and  that  it  should  be  repealed  and  government  owner- 
ship and  management,  or  government  ownership  and  em- 
ployees’ management  under  the  Plumb  plan,  substituted. 
There  are  also  financiers  and  railway  officers  who  are  not 
satisfied  with  all  the  provisions  of  the  Transportation  Act 
and  fear  the  effects  that  it  will  produce. 

It  is  therefore  very  uncertain  whether  the  Transporta- 
tion Act  will  afford  a satisfactory  solution  of  the  railroad 
problem.  Indeed,  I think  we  should  frankly  recognize  the 
fact  that  probably  no  solution  of  it  ever  will  be  reached 
which  all  classes  will  accept  as  entirely  satisfactory.  The 
railway  employees  have  certain  opinions  as  to  the  condi- 
tions of  employment  and  the  wages  they  ought  to  be  given. 
The  shipping  and  traveling  public  has  certain  opinions 
as  to  the  rates  and  service  it  ought  to  be  given.  The  owners 
of  railroad  securities  have  certain  opinions  as  to  the  in- 
terest and  dividends  they  ought  to  be  paid.  It  has  been 
found  impossible  thus  far  to  give  to  any  one  of  these  classes 
all  it  has  held  itself  entitled  to  without  depriving  one  or 
more  of  the  other  classes  of  a very  large  part  of  what  it 
has  considered  itself  entitled  to. 

It  has  been  hoped,  however,  that,  by  establishing  cer- 
tain governmental  agencies  to  mediate  between  the  classes 
holding  these  conflicting  views,  it  would  be  possible  to  se- 
cure adjustments  which  all  would  recognize  as  doing  a 
rough  justice.  The  Interstate  Commerce  Commission  was 
established  over  thirty  years  ago  primarily  to  determine 
controversies  arising  between  the  railways  and  their  pa- 
trons regarding  rates.  The  Transportation  Act  has  given 
it  new  powers  and  duties  with  respect  to  the  fixing  of  rates, 
and  also  new  powers  and  duties  regarding  the  regulation  of 
service.  In  addition,  the  Transportation  Act  has  created 


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a new  body,  the  Railroad  Labor  Board,  to  settle  controver- 
sies concerning  wages  and  conditions  of  employment  aris- 
ing between  the  railways  and  their  employees.  Whatever 
differences  of  opinion  may  exist  as  to  how  this  new  law 
has  worked  thus  far  or  will  work  in  future,  there  is  one 
point  concerning  it  on  which  all  must  agree.  This  is,  that 
it  is  the  most  important  piece  of  railroad  legislation  ever 
enacted  in  this  country. 

The  railways  were  returned  to  private  management  un- 
der the  Transportation  Act  on  March  1st,  and  therefore 
have  now  been  operating  under  it  over  seven  months.  Not 
only  are  there  differences  of  opinion  as  to  how  the  Trans- 
portation Act  will  work  in  future,  but  some  controversies 
have  arisen  as  to  the  results  it  has  produced  already.  I 
am  going  to  try,  in  the  short  time  at  my  disposal,  both  to 
review  briefly  the  developments  which  have  occurred  since 
the  railways  were  returned  to  their  owners  and  to  indicate 
some  of  the  things  I think  must  be  done  in  future  if  their 
operation  under  the  Transportation  Act  is  to  result  in  a 
solution  of  the  railroad  problem  which  will  be  approxi- 
mately just  and  satisfactory  to  shippers  and  travelers,  to 
railway  employees,  to  investors  in  railway  securities,  and 
to  the  public. 

The  Results  of  Government  Control. 

Before  anybody  attempts  to  pass  judgment  on  the  de- 
velopments in  the  railway  field  within  recent  months,  he 
should  picture  to  himself  the  conditions  which  existed  when 
the  Transportation  Act  went  into  effect  and  the  railways 
were  returned  to  their  owners.  The  railways  had  been  in 
the  hands  of  the  government  over  two  years.  Their  traffic 
departments  had  been  largely  destroyed,  and  much  traffic, 
especially  freight,  had  been  diverted  from  its  normal  chan- 
nels. Both  the  tracks  and  the  locomotives  and  cars  had 
been  subjected  to  the  hardest  kind  of  service  without  being 
maintained  to  as  high  standards  as  under  private  operation. 
The  number  of  new  locomotives  and  freight  cars  purchased 


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had  been  less  than  half  the  number  previously  bought 
merely  to  replace  those  worn  out,  and  not  a single  new  pas- 
senger car  had  been  bought. 

The  eight-hour  day  and  other  policies  which  had  been 
adopted  had  resulted  in  an  increase  of  250,000  in  the  num- 
ber of  employees,  without  any  appreciable  increase  in  the 
traffic  handled.  Many  classes  of  employees  who  previously 
were  unorganized  had  been  unionized.  Piece  work  had 
been  abolished  where  it  formerly  had  prevailed,  and  griev- 
ance cases  had  been  appealed  to  central  boards  of  adjust- 
ment sitting  at  Washington  until  discipline  among  the  em- 
ployees had  been  demoralized. 

The  freight  cars  of  the  individual  lines  had  been  scat- 
tered all  over  the  country  and,  partly  owing  to  this  and 
partly  to  the  effects  of  the  coal  strike  last  winter,  the  east- 
ern lines  found  an  excessive  number  of  their  coal  cars 
were  in  the  West,  while  the  western  lines  found  that  an 
excessive  number  of  their  box  cars  were  in  the  East.  Oper- 
ating expenses  had  been  increased  far  more  than  rates 
and  earnings,  with  the  result  that  all  net  operating  income 
had  been  wiped  out.  There  was  nending  an  unsettled  wage 
dispute  between  the  Railroad  Administration  and  the  em- 
ployees of  the  railways  involving  $1,000,000,000  a year.  A 
very  active  propaganda  was  being  carried  on  among  the 
employees  against  private  ownership  and  management,  and 
in  favor  of  the  Plumb  plan  of  government  ownership  and 
employees’  management. 

The  companies  had  to  resume  the  operation  of  the  prop- 
erties not  only  under  these  adverse  conditions,  but  at  a 
time  when  the  productive  industries  of  the  country  were, 
offering  to  the  railways  a business  so  large  that  under 
government  operation  it  had  been  overtaxing  the  facilities. 
The  situation  that  existed  is  illustrated  by  the  fact  that 
about  100,000  loaded  cars  were  accumulated  in  the  vari- 
ous large  terminals  because  of  inability  to  move  them. 


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Recent  Improvements  in  Operating  Conditions. 

An  improvement  in  operating-  conditions  was  effected  in 
the  first  month  of  private  operation.  The  business  moved 
in  March  was  the  largest  ever  handled  in  that  month.  About 
April  1st,  however,  chiefly  owing  to  the  unsettled  wage 
controversy  which  was  a heritage  from  the  Railroad  Ad- 
ministration, there  began  a series  of  “outlaw”  strikes  of 
switchmen  in  large  terminals  throughout  the  country  that 
created  a serious  condition.  They  greatly  reduced  the 
amount  of  freight  that  could  be  moved,  and  increased  the 
accumulations  of  loaded  cars  in  terminals  to  almost  300,000. 
It  required  herculean  efforts  by  railway  officers  and  the 
loyal  employees  to  cope  with  the  situation.  Gradually, 
however,  labor  conditions  improved,  and  they  have  shown 
still  more  marked  improvement  since  the  Railroad  Labor 
Board  made  its  wage  award  at  the  end  of  July. 

The  railway  executives  formed  a co-operative  organiza- 
tion to  secure  the  most  efficient  possible  use  of  locomotives, 
cars  and  all  other  facilities.  The  result  has  been  the  most' 
remarkable  improvement  in  transportation  conditions  ever 
made  within  an  ecpial  period.  In  July  and  August  the 
amount  of  freight  handled  was  the  largest  ever  handled 
in  those  two  months  in  history.  There  was  at  one  time 
very  serious  danger  of  a coal  famine,  especially  in  the 
Northwest.  By  co-operation  between  the  Interstate  Com- 
merce Commission,  the  coal  mine  operators  and  the  railway 
managements,  production  and  transportation  were  so  in- 
creased that  the  danger  of  any  serious  shortage  of  coal  in 
the  country  as  a whole,  or  any  section  of  it,  now  seems  to 
be  practically  past.  The  western  lines  have  had  great 
difficulty  in  handling  the  grain  business.  This  has  been 
largely  due  to  the  fact  that  when  the  railways  were  returned 
to  private  operation  an  excessive  number  of  box  cars  were 
on  the  eastern  lines  and  the  “outlaw”  strikes  rendered  it 
very  difficult  to  move  sufficient  numbers  of  them  west.  With- 
in recent  weeks,  however,  the  box  car  situation  on  the  west- 


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ern  lines  lias  improved  and  there  is  now  more  grain  being 
moved  than  at  this  time  last  year. 

Comparative  Cost  of  Government  and  Private 
Operation. 

During  the  time  when  the  railways  were  struggling  with 
the  switchmen’s  strike,  and  business  was  somewhat  de- 
moralized by  it,  the  defenders  of  government  control  and 
advocates  of  the  Plumb  plan  began  to  criticize  private  op- 
eration upon  the  ground  that  it  was  proving  incapable  of 
handling  the  country’s  traffic  as  well  as  it  had  been  handled 
under  government  operation.  Now  that  under  private  op- 
eration, in  spite  of  all  the  difficulties  that  have  had  to  be 
overcome,  the  railways  are  moving  more  freight  than  ever 
was  moved  under  government  operation,  and  have  reduced 
congestions  until  the  accumulations  of  loaded  cars  amount 
to  only  41,000,  the  defenders  of  government  operation  and 
critics  of  private  management  have  begun  to  use  ammuni- 
tion of  a different  kind.  As  you  know,  the  government 
guaranteed  to  the  railway  companies  during  the  first  six 
months  of  private  operation  the  same  return  that  it  guar- 
anteed to  them  under  government  control.  Recently 
widespread  publicity  has  been  given  to  the  effect  that  since 
the  railways  were  returned  to  their  owners  they  have 
been  incurring  a large  deficit  which  the  taxpayers  will  have 
to  pay.  It  is  estimated  the  total  deficit  for  the  six  months  ’ 
period  will  exceed  $600,000,000.  The  inference  is  that 
the  loss  to  the  public  during  these  six  months  was  much 
more  than  it  would  have  been  if  government  operation  had 
been  continued.  Propaganda  to  this  effect  is  being  spread 
all  over  the  country  by  advocates  of  government  owner- 
ship and  the  Plumb  plan. 

It  is,  unfortunately,  true  that  during  the  first  six  months 
of  private  operation  the  comjDanies  did  incur  a large  deficit 
which  the  taxpayers  of  the  United  States  must  meet.  Prob- 
ably the  estimate  that  it  will  amount  to  $600,000,000  is  not 
far  from  correct.  Nevertheless,  I am  prepared  to  main- 


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tain,  on  the  basis  of  the  showing  made  by  the  Railroad  Ad- 
ministration in  the  closing  months  of  government  control, 
that  the  government  saved  the  taxpayers  of  the  country 
a large  amount  of  money  by  returning  the  railways  to  pri- 
vate operation  when  it  did — in  other  words,  that  if  gov- 
ernment operation  had  been  continued  the  deficit  in  these 
six  months  would  have  been  much  larger  than  it  actually 
was  under  private  operation. 

Most  people  know  that  under  government  control  the 
operating  expenses  of  the  railways  greatly  increased  and 
that  a large  deficit  was  incurred.  Most  people  apparently 
do  not  know  that  the  increases  in  the  expenses  and  in  the 
deficit  continued  month  by  month  right  up  to  the  termina- 
tion of  government  control.  As  a matter  of  fact,  both  the- 
operating  expenses  and  the  deficit  incurred  in  the  very  last 
months  of  government  control  were  the  largest  that  ever 
were  incurred  under  government  control.  Reviewing  the 
last  six  months  of  government  control  we  find  that  in  Au- 
gust, 1919,  the  operating  expenses  were  $359,000,000,  while 
in  February,  1920,  they  were  $415,000,000,  an  increase  of 
$56,000,000.  In  August,  1919,  the  net  operating  income 
earned  was  $92,000,000.  In  September  it  declined  to  $78,- 
000,000;  in  October  it  was  $76,000,000;  in  November,  $22,- 
000,000;  and  in  December,  $13,000,000.  In  January  the  net 
operating  income  reported  was  $64,000,000,  but  this  in- 
cluded $50,000,000  of  back  mail  pay  which  the  Interstate 
Commerce  Commission  held  that  the  Post  Office  Depart- 
ment owed  the  railways  because  of  underpayments  over  a 
period  of  years.  The  true  net  operating  income  earned  in 
that  month  was  only  $14,000,000.  In  February,  the  last 
month  of  government  operation,  the  operating  expenses 
and  taxes  of  the  roads  exceeded  their  total  earnings  by 
over  $12,000,000 — in  other  words,  they  earned  that  much 
less  than  no  net  operating  income  at  all. 

Since  within  six  months  the  net  operating  income  of  the 
railways  had  dwindled  under  government  operation  from 
$92,000,000  to  $12,000,000  a month  less  than  nothing,  it  is 


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reasonable  to  assume  that  if  government  operation  had  been 
continued  the  loss  incurred  would  have  kept  on  growing 
relatively  greater.  Let  us,  however,  give  government  op- 
eration the  benefit  of  the  doubt  and  assume  that  if  it  had 
been  continued  for  six  months  more  the  results  obtained 
would  have  been  relatively  no  worse  than  they  were  in  the 
first  two  months  of  the  year — January  and  February.  This 
is  very  fair  to  government  operation,  for  in  those  two 
months  the  total  business  handled  and  the  total  earnings 
made  were  the  largest  ever  recorded  in  January  and  Febru- 
ary. The  government’s  guarantees  to  the  railway  com- 
panies in  January  and  February,  based  on  the  net  operat- 
ing income  actually  earned  by  the  companies  in  the  three 
test  years,  were  $104,551,000.  The  net  operating  income 
actually  earned  in  those  two  months  under  government 
operation  was  only  $1,930,500,  or  but  1.84  per  cent  of  the 
guarantees.  The  government’s  guarantees  to  the  com- 
panies for  the  six  months  from  March  1st  to  September  1st 
would  have  been,  if  government  operation  had  been  con- 
tinued and  they  had  been  based  on  the  amounts  actually 
earned  by  the  railways  in  the  three  test  years,  $457,676,000. 
If  in  those  six  months  the  government  had  earned  only 
1.84  per  cent  of  the  guarantees,  as  it  did  in  January  and 
February,  the  net  operating  income  earned  by  it  would 
have  been  only  $8,421,000,  leaving  it  with  a deficit  of  $449,- 
255,000. 

But  there  are  other  most  important  factors  to  be  con- 
sidered. One  of  the  principal  reasons  why  under  private 
operation  the  railways  have  incurred  a large  deficit  is  that 
advances  in  wages  amounting  to  $52,000,000  a month,  and 
effective  during  four  of  these  six  months — from  May  1st 
to  September  1st — and  therefore  amounting  for  the  four 
months  to  $208,000,000,  were  granted  by  the  Railroad  Labor 
Board  in  July.  It  is  fair  to  assume  that  corresponding  ad- 
vances in  wages  would  have  been  made  if  government  con- 
trol had  been  continued,  and  if  this  had  been  the  case  the 
deficit  incurred  by  the  government  during  these  six  months 


would  have  been  increased  to  $657,255,000.  In  addition  to 
all  this,  the  railways  have  been  subjected  to  increases  in 
the  prices  of  coal  which  caused  their  total  fuel  hill  in  July, 
1920,  to  be  $14,000,000  more  than  it  was  in  July,  1919.  It 
is  a fair  assumption  that  this  increase  in  the  cost  of  coal 
also  would  have  occurred  under  government  operation  and 

I ! would  have  further  increased  the  government’s  deficit  dur- 
ing the  six  months  by  $50,000,000  to  $75,000,000.  It  is, 
therefore,  a fair  conclusion  from  all  the  facts  that  if  gov- 
ernment operation  had  been  continued  the  deficit  incurred 
by  the  government  during  these  six  months  would  have 
been  not  less  than  $700,000,000,  a figure  much  larger  than 
the  estimated  deficit  actually  incurred  under  private  opera- 
tion. 

Increases  in  Expenses  and  Expenditures  Under  Private 

Control. 

I It  is  undeniable  that  there  have  been  large  increases  in 
expenses  since  the  railways  were  returned  to  private  opera- 
tion. But  these  increases  have  been  due  to  causes  beyond 
the  control  of  the  managements.  One  of  the  reasons  has 
been  the  large  increase  in  wages  granted  by  the  Railroad 
Labor  Board  I have  already  mentioned.  Another  has  been 
the  large  increase  which  has  occurred  in  the  price  of  coal. 
Another  has  been  that,  as  I have  said,  the  government  re- 
turned the  railways  to  their  owners  in  a greatly  deteri- 
orated condition,  and  it  has  been  necessary  to  spend  larger 
amounts  for  maintenance  than  were  spent  under  govern- 
ment control.  For  example,  there  was  a large  increase 
under  government  control  in  the  number  of  freight  cars  in 
bad  order,  and,  in  addition  to  repairing  all  the  cars  they 
could  in  their  own  shops,  the  companies  have  had  to  turn 
over  many  thousands  to  be  repaired  by  outside  car  building 
and  car  repair  companies.  In  the  five  months  from  March 
to  July,  inclusive,  the  companies  spent  $103,000,000  more 
for  maintenance  of  way  and  structures  and  $132,000,000 
more  for  maintenance  of  ecpiipment,  a total  of  $235,000,000 

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more  for  maintenance  of  both  kinds,  than  was  spent  dur- 
ing- the  same  months  of  1919  under  government  control. 
Another  factor  of  great  importance  which  must  not  be 
forgotten  is  that  the  railways  have  had  to  go  through  a 
series  of  “outlaw”  strikes  which  were  a result  of  the  fail- 
ure of  the  government  to  settle  the  wage  controversy  which 
was  pending  when  the  railways  were  returned  to  their  own- 
ers. These  strikes  reduced  the  earnings  and  increased  the 
expenses  of  the  companies  to  an  extent  which  made  the 
deficit  incurred  probably  $200,000,000  more  than  it  other- 
wise would  have  been. 

The  Results  oe  Recent  Increases  in'  Efeiciency. 

On  the  whole,  the  results  gained  indicate  that  in  spite 
of  the  great  increases  in  maintenance  expenditures  which 
have  been  made  necessary  by  the  deterioration  of  the  prop- 
erties under  government  control,  the  railways  have  been 
much  more  economically  operated  under  private  control 
than  they  would  have  been  under  government  control.  How 
has  this  relatively  greater  economy  of  operation  been  se- 
cured! It  has  been  secured  by  increasing  efficiency,  in 
spite  of  strikes  and  other  difficulties,  in  almost  every  way 
in  which  it  could  be  increased.  The  latesT  complete  sta- 
tistics regarding  operation  which  we  have  are  those  for 
July,  when  the  effects  of  the  “outlaw”  strikes  were  still 
seriously  felt.  Even  in  that  month,  as  compared  both  with 
February,  when  the  railways  were  returned  to  their  owners, 
and  with  July  of  last  year,  very  great  increases  in  efficiency 
had  been  secured.  The  average  number  of  miles  each  car 
was  moved  daily  in  July,  1919,  was  24.1  miles,  while  in  July, 
1920,  it  was  26.1  miles.  This  had  the  same  effect  as  in- 
creasing the  available  supply  of  cars  by  200,000.  The  aver- 
age number  of  tons  hauled  per  car  in  July,  1919,  was  27.8, 
and  in  July,  1920,  it  was  29.6.  This  had  the  same  effect 
as  increasing  the  number  of  available  cars  by  135,000.  The 
number  of  cars  unfit  for  service  in  July,  1919,  was  8.7  per 
cent,  while  in  July,  1920,  it  had  been  reduced  to  7.2  per  cent. 


10 


This  had  the  same  effect  as  increasing  the  number  of  cars 
by  over  35,000.  The  average  tons  hauled  per  .train  was  in- 
creased from  761  to  769.  All  these  improvements  helped 
to  secure  the  great  increase  in  the  amount  of  traffic  moved 
which  has  been  obtained  within  recent  months;  and  the 
increases  in  the  average  miles  moved  by  each  car  daily 
and  in  the  average  number  of  tons  handled  in  each  car  and 
each  train  tended  strongly  to  keep  down  operating  ex- 
penses, although  of  course  the  economies  effected  were  more 
than  offset  by  increases  in  the  cost  of  fuel,  in  wages  and 
in  maintenance  expenditures. 

Considering  all  the  difficulties  under  which  they  have 
labored,  the  record  of  increased  efficiency  the  railways  have 
made  since  they  were  returned  to  private  operation  is  one* 
of  which  they  are  proud,  and  justly  proud.  As  I indicated 
in  beginning  my  remarks,  however,  the  railroad  problem  is 
not  by  any  means  solved  yet.  It  will  recpiire  years  of  pa- 
tient co-operation  between  the  patrons  and  the  managers 
of  the  railways,  years  of  strenuous  exeftion  by  the  officers 
and  employees  of  the  railways,  and  the  investment  of  vast 
amounts  of  capital  in  new  facilities,  to  solve  the  problem 
in  a way  that  will  be  even  approximately  satisfactory  to  all 
concerned. 

Aftermath  of  the  Rate  Advances. 

Realizing  the  need  for  large  increases  in  the  earnings 
of  the  railways  to  put  them  on  their  feet  financially  and 
make  possible  the  rehabilitation  and  expansion  of  their  fa- 
cilities, the  Interstate  Commerce  Commission  has  granted 
advances  in  rates  which,  it  has  been  estimated,  will  yield 
about  $1,500,000,000  of  additional  revenue  and  enable  the 
companies  to  earn  a 6 per  cent  return  on  the  total  valuation 
placed  on  them,  or  about  $1,150,000,000  net  operating  in- 
come annually.  One  of  the  most  important  questions  con- 
fronting us  is  whether  all  the  advances  in  rates  contem- 
plated by  the  Commission  actually  will  be  made.  A com- 
mittee of  three,  representing  the  State  Railroad  and  Public 


li 


Utility  Commissioners,  sat  with  the  Interstate  Commerce 
Commission  throughout  the  rate  hearings  and  afterward 
recommended  that  advances  in  all  state  rates  should  be 
made  corresponding-  with  those  authorized  to  be  made  in 
interstate  rates.  Many  of  the  state  commissions  have  thus 
far  failed,  and  many  have  directly  refused,  to  act  favorably 
on  this  recommendation.  In  some  states  smaller  advances 
than  those  authorized  by  the  Interstate  Commerce  Commis- 
sion have  been  granted,  while  in  others  no  advances  have 
been  granted. 

If  advances  in  all  state  rates  are  not  made  corresponding 
with  those  made  in  interstate  rates,  the  railways  will  be 
denied  the  opportunity  to  earn  the  net  returns  the  Inter- 
state Commerce  Commission  and  the  committee  of  state 
commissioners  who  sat  with  it  have  held  that  they  should, 
in  the  public  interest,  be  allowed  to  earn.  The  inevitable 
result  will  be  that  the  roads  will  be  prevented  from  ade- 
cpiately  rehabilitating  their  properties  and  expanding  their 
facilities.  This  is  not  a matter  which  concerns  merely  the 
railway  companies.  It  is  the  producing  and  consuming 
public  of  the  United  States  which  most  needs  improvement 
and  increase  of  the  facilities  of  transportation.  The  rail- 
ways with  their  existing  facilities  cannot,  even  with  the 
most  strenuous  exertions  and  the  most  efficient  operation, 
handle  all  the  traffic  offered  to  them  when  business  is  good 
and  production  is  at  its  maximum.  They  cannot  handle 
all  the  coal  the  mines  can  produce,  or  all  the  lumber  or  iron 
and  steel  that  the  manufacturing  plants  can  turn  out,  or  all 
the  grain  and  cotton  that  the  farmers  can  grow.  Therefore, 
failure  to  improve  and  increase  the  facilities  of  transporta- 
tion is  bound  to  prevent  an  increase  of  production,  and 
without  an  increase  of  production  there  cannot  be  an  in- 
crease in  the  necessities,  comforts  and  luxuries  provided 
for  the  people  or  a permanent  and  substantial  reduction 
in  the  cost  of  living.  The  state  railroad  commissions  that 
are  refusing  to  follow  the  lead  of  the  Interstate  Commerce 
Commission  in  advancing  rates  are  not  defending,  but 


12 


jeopardizing  the  interests  of  the  people,  and  it  is  hoped 
public  sentiment,  acting,  if  necessary,  through  the  federal 
regulating  authorities,  will  cause  them  to  change  their  at- 
titude. 

Suppose  that  all  the  advances  in  both  interstate  and  state 
rates  contemplated  by  the  Interstate  Commerce  Commis- 
sion when  it  rendered  is  decision  shall  be  made.  Will  that 
put  the  railroads  on  their  feet  financially  again  and  enable 
them  in  time  to  so  improve  and  increase  their  facilities  as 
to  make  it  practicable  for  them  to  render  adequate  and 
satisfactory  service?  That  is  a question  which  only  the 
future  can  answer.  It  will  be  determined  by  future  de- 
velopments affecting  the  amount  of  traffic  offered  to  the 
railways,  the  trend  of  their  operating  expenses  and  their 
ability  to  sell  their  securities.  While  the  traffic  handled 
by  the  railways  as  a whole  has  continued  to  increase,  the 
amount  of  it  offered  to  some  railways  has  declined  within 
recent  months.  This  has  been  especially  true  of  the  so- 
called  “granger”  roads  in  the  Middle  West.  Most  of  these 
roads  in  September,  owing  to  declines  of  traffic,  did  not 
have  much  larger  earnings  than  they  did  before  the  ad- 
vances in  rates  were  made.  As  to  operating  expenses,  the 
increase  in  the  price  of  coal  is  forcing  the  railways  as  a 
whole  to  pay  at  an  annual  rate  of  $150,000,000  to  $200,000,- 
000  more  for  fuel  than  they  did  during  the  period  on  whose 
operating  results  they  based  their  applications  for  ad- 
vances in  rates. 

The  Belation  of  Labor  to  Increased  Expenses. 

There  are  other  reasons  why  they  are  having  great  dif- 
ficulty in  preventing  undue  increases  in  expenses.  Bela- 
tively  the  largest  increases  in  their  expenses  have  taken 
place  in  the  shops  used  by  them  for  the  maintenance  and 
repair  of  equipment.  Before  government  control  was 
adopted  the  employees  in  many  railway  shops  were  paid 
on  a piece  work  basis.  During  government  control  all  piece 
work  on  railways  was  abolished.  The  result  has  been  a 


13 


serious  decline  in  the  efficiency  of  certain  classes  of  em- 
ployees. The  Railroad  Administration  entered  into  na- 
tional agreements  with  many  classes  of  employees  which 
have  imposed  burdensome  restrictions  and  have  greatly 
increased  expenses.  The  Railroad  Administration  also 
established  at  Washington  a number  of  hoards  of  adjust- 
ment to  which  employees  of  all  the  railways  could  appeal 
discipline  and  grievance  cases  from  the  individual  manage- 
ments. These  boards  rendered  numerous  decisions  which 
greatly  increased  expenses,  and  we  are  now  confronted  with 
demands  from  the  labor  unions  for  the  establishment  of 
similar  boards  under  private  operation. 

I do  not  intend  now  to  enter  upon  any  extended  discus- 
sion of  the  present  labor  situation  on  the  railways,  but  I will 
say  what  ought  to  be  perfectly  obvious,  viz:  that  the 
railways  cannot  restore  the  efficiency  and  economy  of  op- 
eration which  formerly  prevailed  unless  they  can  secure 
efficient  work  from  their  employees.  The  employees  are 
to-day  paid  the  highest  wages  in  history  and  are  working 
on  an  eight-hour  basis,  and  it  is  their  duty,  not  merely 
to  the  companies  but  to  the  public,  to  give  one  good  hour’s 
work  for  every  hour’s  pay  that  they  receive.  If  the  rail- 
way managements  are  opposed  to  certain  labor  policies 
adopted  under  government  control  it  is  because  they  know 
that  those  policies  have  resulted  in  a decline  in  the  effi- 
ciency of  labor,  and  if  the  employees  persistently  refuse 
to  increase  their  efficiency  under  those  policies,  then  we 
maintain  the  labor  organizations  and  the  public  should  co- 
operate with  the  railway  officers  for  the  welfare  of  all  in 
establishing  other  policies  which  will  result  in  an  increase 
in  the  efficiency  of  labor. 

Present  Situation  is  One  of  Uncertainty. 

As  what  I have  said  would  indicate,  the  present  situation 
is,  from  the  standpoint  of  the  railway  managers,  one  of 
uncertainty.  They  do  not  know  as  yet  what  rates  they  are 
going  to  get,  or  what  net  return  they  will  be  able  to  earn 


14 


when  they  get  them.  They  do  not  know  whether  the  net 
return  earned  will  be  sufficient  to  enable  them  in  the  present 
unsatisfactory  money  market  to  sell  enough  securities  to 
raise  the  new  capital  required  adequately  to  improve  and 
increase  railroad  facilities.  But  the  railway  managers 
have  accepted  the  Transportation  Act  in  good  faith  and 
are  doing  their  best,  and  will  continue  to  do  their  best,  to 
operate  the  roads  under  it  with  maximum  efficiency  and 
economy.  They  did  not  secure  even  from  the  Interstate 
Commerce  Commission  all  the  advances  in  rates  for  which 
they  asked,  and  are  being  very  unfairly  treated  by  many 
state  commissions,  but  they  believe  that  the  Interstate 
Commerce  Commission  acted  with  as  much  fairness,  wis- 
dom and  foresight  as  any  government  body  could  have  been 
expected  to  in  the  circumstances.  Not  only  have  they  no 
complaint  to  make  about  the  Interstate  Commerce  Commis- 
sion’s decision  in  the  rate  case,  but  they  feel  and  express 
the  most  cordial  appreciation  of  the  wise  and  energetic 
assistance  which  it  has  given  them  in  solving  the  extremely 
difficult  problem  of  moving  the  country’s  business  with 
which  they  have  been  confronted  ever  since  private  opera- 
tion was  resumed.  If  the  railway  executives  find  that  the 
net  income  they  are  able  to  earn  under  the  new  rates  is  not 
sufficient  they  will  not  hesitate  to  say  so,  but  at  the  same 
time  they  will  make  the  best  use  possible  of  what  they  do 
earn  in  improving  and  increasing  the  service  rendered. 
Whatever  may  have  been  the  attitude  of  railway  managers 
in  the  past,  they  all  to-day  frankly  recognize  the  fact  that 
they  are  trustees  not  only  for  those  who  own  the  railways 
but  also  for  the  public,  and  they  insist,  and  shall  continue 
to  insist  in  future,  that  they  must  be  given  opportunity  to 
operate  the  properties  efficiently  and  to  earn  an  adequate 
return,  not  merely  in  the  interest  of  the  bondholders  and 
the  stockholders,  but  also  in  the  interest  of  the  public,  whose 
welfare  is  vitally  dependent  upon  the  provision  of  good, 
economical  and  adequate  railroad  service. 


15 


